Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

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Act current to 2018-07-05 and last amended on 2018-07-01. Previous Versions

Marginal note:Granting of options
  •  (1) Subject to subsections 49(3) and 49(3.1), for the purposes of this subdivision, the granting of an option, other than

    • (a) an option to acquire or to dispose of a principal residence,

    • (b) an option granted by a corporation to acquire shares of its capital stock or bonds or debentures to be issued by it, or

    • (c) an option granted by a trust to acquire units of the trust to be issued by the trust,

    is a disposition of a property the adjusted cost base of which to the grantor immediately before the grant is nil.

  • Marginal note:Expired option — shares

    (2) If at any time an option described in paragraph (1)(b) expires, the corporation that granted the option is deemed to have disposed of capital property at that time for proceeds equal to the proceeds received by it for the granting of the option, and the adjusted cost base to the corporation of that capital property immediately before that time is deemed to be nil, unless

    • (a) the option is held, at that time, by a person who deals at arm’s length with the corporation and the option was granted by the corporation to a person who was dealing at arm’s length with the corporation at the time that the option was granted, or

    • (b) the option is an option to acquire shares of the capital stock of the corporation in consideration for the incurring, pursuant to an agreement described in paragraph (e) of the definition Canadian exploration and development expenses in subsection 66(15), paragraph (i) of the definition Canadian exploration expense in subsection 66.1(6), paragraph (g) of the definition Canadian development expense in subsection 66.2(5) or paragraph (c) of the definition Canadian oil and gas property expense in subsection 66.4(5), of any expense described in whichever of those paragraphs is applicable.

  • Marginal note:Expired option — trust units

    (2.1) If, at a particular time, an option referred to in paragraph (1)(c) expires, and the option is held at that time by a person who does not deal at arm’s length with the trust or was granted to a person who did not deal at arm’s length with the trust at the time that the option was granted,

    • (a) the trust is deemed to have disposed of capital property at the particular time for proceeds equal to the proceeds received by it for the granting of the option; and

    • (b) the adjusted cost base to the trust of that capital property immediately before the particular time is deemed to be nil.

  • Marginal note:Where option to acquire exercised

    (3) Where an option to acquire property is exercised so that property is disposed of by a taxpayer (in this subsection referred to as the “vendor”) or so that property is acquired by another taxpayer (in this subsection referred to as the “purchaser”), for the purpose of computing the income of each such taxpayer the granting and the exercise of the option shall be deemed not to be dispositions of property and there shall be included

    • (a) in computing the vendor’s proceeds of disposition of the property, the consideration received by the vendor for the option; and

    • (b) in computing the cost to the purchaser of the property,

      • (i) where paragraph 53(1)(j) applied to the acquisition of the property by the purchaser because a person who did not deal at arm’s length with the purchaser was deemed because of the acquisition to have received a benefit under section 7, the adjusted cost base to that person of the option immediately before that person last disposed of the option, and

      • (ii) in any other case, the adjusted cost base to the purchaser of the option.

  • Marginal note:Option to acquire specified property exercised

    (3.01) Where at any time a taxpayer exercises an option to acquire a specified property,

    • (a) there shall be deducted after that time in computing the adjusted cost base to the taxpayer of the specified property the total of all amounts deducted under paragraph 53(2)(g.1) in computing, immediately before that time, the adjusted cost base to the taxpayer of the option; and

    • (b) the amount determined under paragraph 49(3.01)(a) in respect of that acquisition shall be added after that time in computing the adjusted cost base to the taxpayer of the specified property.

  • Marginal note:Where option to dispose exercised

    (3.1) Where an option to dispose of property is exercised so that property is disposed of by a taxpayer (in this subsection referred to as the “vendor”) or so that property is acquired by another taxpayer (in this subsection referred to as the “purchaser”), for the purpose of computing the income of each such taxpayer the granting and the exercise of the option shall be deemed not to be dispositions of property and there shall be deducted

    • (a) in computing the vendor’s proceeds of disposition of the property, the adjusted cost base to the vendor of the option; and

    • (b) in computing the cost to the purchaser of the property, the consideration received by the purchaser for the option.

  • Marginal note:Option granted before February 23, 1994

    (3.2) Where an individual (other than a trust) who disposes of property pursuant to the exercise of an option that was granted by the individual before February 23, 1994 so elects in the individual’s return of income for the taxation year in which the disposition occurs, subsection 49(3) does not apply in respect of the disposition in computing the income of the individual.

  • Marginal note:Reassessment where option exercised in subsequent year

    (4) Where

    • (a) an option granted by a taxpayer in a taxation year (in this subsection referred to as the “initial year”) is exercised in a subsequent taxation year (in this subsection referred to as the “subsequent year”),

    • (b) the taxpayer has filed a return of the taxpayer’s income for the initial year as required by section 150, and

    • (c) on or before the day on or before which the taxpayer was required by section 150 to file a return of the taxpayer’s income for the subsequent year, the taxpayer has filed an amended return for the initial year excluding from the taxpayer’s income the proceeds received by the taxpayer for the granting of the option,

    such reassessment of the taxpayer’s tax, interest or penalties for the year shall be made as is necessary to give effect to the exclusion.

  • Marginal note:Idem

    (5) Where a taxpayer has granted an option (in this subsection referred to as the “original option”) to which subsection 49(1), 49(2) or 49(2.1) applies, and grants one or more extensions or renewals of that original option,

    • (a) for the purposes of subsections 49(1), 49(2) and 49(2.1), the granting of each extension or renewal shall be deemed to be the granting of an option at the time the extension or renewal is granted;

    • (b) for the purposes of subsections (2) to (4) and subparagraph (b)(iv) of the definition disposition in subsection 248(1), the original option and each extension or renewal of it is deemed to be the same option; and

    • (c) subsection 49(4) shall be read as if the year in which the original option was granted and each year in which any extension or renewal thereof was granted were all initial years.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 49;
  • 1994, c. 7, Sch. II, s. 27;
  • 1995, c. 3, s. 13, c. 21, s. 14;
  • 2001, c. 17, s. 34;
  • 2013, c. 34, s. 188.
Marginal note:No disposition where obligation satisfied

 For greater certainty, where a taxpayer acquires a particular property in satisfaction of an absolute or contingent obligation of a person or partnership to provide the particular property pursuant to a contract or other arrangement one of the main objectives of which was to establish a right, whether absolute or contingent, to the particular property and that right was not under the terms of a trust, partnership agreement, share or debt obligation, the satisfaction of the obligation is not a disposition of that right.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. 2000, c. 19, s. 3.
Marginal note:Debts established to be bad debts and shares of bankrupt corporation
  •  (1) For the purposes of this subdivision, where

    • (a) a debt owing to a taxpayer at the end of a taxation year (other than a debt owing to the taxpayer in respect of the disposition of personal-use property) is established by the taxpayer to have become a bad debt in the year, or

    • (b) a share (other than a share received by a taxpayer as consideration in respect of the disposition of personal-use property) of the capital stock of a corporation is owned by the taxpayer at the end of a taxation year and

      • (i) the corporation has during the year become a bankrupt,

      • (ii) the corporation is a corporation referred to in section 6 of the Winding-up Act that is insolvent (within the meaning of that Act) and in respect of which a winding-up order under that Act has been made in the year, or

      • (iii) at the end of the year,

        • (A) the corporation is insolvent,

        • (B) neither the corporation nor a corporation controlled by it carries on business,

        • (C) the fair market value of the share is nil, and

        • (D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business

    and the taxpayer elects in the taxpayer’s return of income for the year to have this subsection apply in respect of the debt or the share, as the case may be, the taxpayer shall be deemed to have disposed of the debt or the share, as the case may be, at the end of the year for proceeds equal to nil and to have reacquired it immediately after the end of the year at a cost equal to nil.

  • Marginal note:Idem

    (1.1) Where

    • (a) a taxpayer is deemed because of subparagraph 50(1)(b)(iii) to have disposed of a share of the capital stock of a corporation at the end of a taxation year, and

    • (b) the taxpayer or a person with whom the taxpayer is not dealing at arm’s length owns the share at the earliest time, during the 24-month period immediately following the disposition, that the corporation or a corporation controlled by it carries on business,

    the taxpayer or the person, as the case may be, shall be deemed to have disposed of the share at that earliest time for proceeds of disposition equal to its adjusted cost base to the taxpayer determined immediately before the time of the disposition referred to in paragraph 50(1.1)(a) and to have reacquired it immediately after that earliest time at a cost equal to those proceeds.

  • Marginal note:Where debt a personal-use property

    (2) Where at the end of a taxation year a debt that is a personal-use property of a taxpayer is owing to the taxpayer by a person with whom the taxpayer deals at arm’s length and is established by the taxpayer to have become a bad debt in the year,

    • (a) the taxpayer shall be deemed to have disposed of it at the end of the year for proceeds equal to the amount, if any, by which

      • (i) its adjusted cost base to the taxpayer immediately before the end of the year

      exceeds

      • (ii) the amount of the taxpayer’s gain, if any, from the disposition of the personal-use property the proceeds of disposition of which included the debt; and

    • (b) the taxpayer shall be deemed to have reacquired the debt immediately after the end of the year at a cost equal to the amount of the proceeds determined under paragraph 50(2)(a).

  • Marginal note:Disposal of R.H.O.S.P. properties

    (3) Each trust that was at the end of 1985 governed by a registered home ownership savings plan (within the meaning assigned by paragraph 146.2(1)(h) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952, as it read in its application to the 1985 taxation year) shall be deemed to have disposed, immediately before 1986, of each property it holds at that time for proceeds of disposition equal to the fair market value of the property at that time and to have reacquired it immediately after 1985 at a cost equal to that fair market value.

  • NOTE: Application provisions are not included in the consolidated text;
  • see relevant amending Acts. R.S., 1985, c. 1 (5th Supp.), s. 50;
  • 1994, c. 7, Sch. II, s. 28;
  • 1995, c. 21, s. 15;
  • 2013, c. 40, s. 21.
 
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